Investor Presentation
May 13, 2016
Investor Presentation May 13, 2016 Cautionary Statement Regarding - - PowerPoint PPT Presentation
Investor Presentation May 13, 2016 Cautionary Statement Regarding Forward Looking Information and Other Matters This document and the remarks made within this presentation may include, and officers and representatives of American International
May 13, 2016
This document and the remarks made within this presentation may include, and officers and representatives of American International Group,
the meaning of the Private Securities Litigation Reform Act of 1995. These projections, goals, assumptions and statements are not historical facts but instead represent only AIG’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside AIG’s
“believe,” “anticipate,” “expect,” “intend,” “plan,” “focused on achieving,” “view,” “target,” “goal,” or “estimate.” It is possible that AIG’s actual results and financial condition will differ, possibly materially, from the results and financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG’s actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements include: changes in market conditions; negative impacts on customers, business partners and other stakeholders; the occurrence of catastrophic events, both natural and man-made; significant legal proceedings; the timing and applicable requirements of any new regulatory framework to which AIG is subject as a nonbank systemically important financial institution and as a global systemically important insurer; concentrations in AIG’s investment portfolios; actions by credit rating agencies; judgments concerning casualty insurance underwriting and insurance liabilities; AIG’s ability to successfully manage run-off insurance portfolios; AIG’s ability to successfully reduce costs and expenses and make business and organizational changes without negatively impacting client relationships or AIG’s competitive position; AIG’s ability to successfully dispose of, or monetize, businesses or assets; judgments concerning the recognition of deferred tax assets; judgments concerning estimated restructuring charges and estimated cost savings; and such other factors discussed in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Part II, Item 1A. Risk Factors in AIG’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 and Part II, Item 7. MD&A and Part I, Item 1A. Risk Factors in AIG’s Annual Report on Form 10-K for the year ended December 31, 2015. AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals, assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. This document and the remarks made orally may also contain certain non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP measures in accordance with Regulation G is included in the First Quarter 2016 Financial Supplement available in the Investor Information section of AIG's corporate website, www.aig.com, as well as in the Appendix to this presentation. Nothing in this presentation or in any oral statements made in connection with this presentation is intended to constitute, nor shall it be deemed to constitute, an offer of any securities for sale or the solicitation of an offer to purchase any securities in any jurisdiction.
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“Today, AIG announces steps to narrow its focus, improve its financial performance, and return capital to
about all of our stakeholders. Importantly, we are committed to being our clients’ most valued insurer.”
Peter D. Hancock, President and CEO
“AIG is committed to serving all its stakeholders by: i) delivering first quartile total shareholder return to its shareholders, ii) providing risk expertise and dependable long-term balance sheet strength for its customers, iii) having a culture of strict adherence to both the letter and spirit of regulatory requirements; and iv) maintaining an environment that attracts and retains world class employees.” “Over the past several years, AIG has had superior total shareholder returns, and tens of billions of dollars have been unlocked for shareholders. The Board and management are committed to continuing to deliver shareholder value.”
Douglas M. Steenland, Non-Executive Chairman
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2016-2017 Board Approved Actions
step towards full separation and sale of AIG Advisor Group, while preserving the value
and Consumer segments over time with deferred tax asset (DTA) utilization, contingent
Strategic Actions
transparency and accountability, driving performance improvement and strategic flexibility over time
transparency and highlight the progress to over 10% ROE(1) by 2017 for Operating Portfolio Organizational Changes
Operating Improvements
Notes: (1) Non-GAAP financial measure. See appendix. (2) Target represents fourth quarter exit run rate.
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Operating Portfolio
Operating ROE '16E Operating ROE '17E Equity '15 Equity '17E
Legacy Portfolio (1)
Operating ROE '16E Operating ROE '17E
Consolidated
~$14 bn $23 bn 10.3 - 10.7% 9.3 - 9.7% ~9% 8.4 - 8.9%
(2) (2)
Notes: (1) Legacy Portfolio assets may evolve over time. (2) Normalized operating ROE excluding AOCI & DTA, a non-GAAP financial measure. Operating Portfolio normalized
allocation of Corporate GOE and pushdown of parent debt to the Operating Portfolio; non-GAAP financial measure.
(2) (2)
Normalized ROE of ~9% by 2017, reflecting 10.3 - 10.7% in the Operating Portfolio Legacy Portfolio (1) is a source of capital release totaling ~$9 bn by 2017
(3) (3) 5
Objective FY 2016 Target 1Q16 Selected Actions Reduce Operating Expenses
~$700mm; 6% Reduction in Net GOE
Increase Normalized ROE 8.4 - 8.9%
Insurance underwriting drove improvement
Grow Book Value per Common Share,
14 - 16%
realized capital losses
Return Capital to Shareholders $25B through 2017
repurchases and $363 mm of dividends paid to shareholders
Improve Property Casualty AYLR2 ~62
– Executed reinsurance agreements – Remediating and re-pricing U.S. Casualty business
1) Adjusted for dividend growth. 2) Target represents fourth quarter exit run rate.
$2.6B 8.9% $59.05 $4.0B 64.5
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$7-10 $5-7 $4-5 $3-5 $2 $25
Operating Subsidiary Dividends and Tax- Sharing Payments Divestitures Life Reinsurance Transactions Target Financial Leverage Asset Allocation Shift Capital Return Goal
Projected Sources for 2016-2017 Capital Return Goal ($ bn)
Return at least $25 bn of capital to shareholders through dividends and share repurchases Capital return goal can be achieved notwithstanding strengthening of reserves in 4Q’15
(3) (4) Notes: (1) Dividends and tax-sharing payments (including monetization of deferred tax asset) to Parent, net of Parent operating expenses, debt interest expense, and capital
performance and interest coverage. (5) Plan to monetize a significant portion of our hedge fund investments to reduce capital charges and increase projected distributions. (5) (1) (2)
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Targeting $1.6B of Gross GOE Reductions or $1.4B of Net GOE Reductions by 2017 from GOE
1Q15 FX Impact 1Q15 Revalued Acquisitions Staff Reductions & Benefit Rationalization All other, net 1Q16
1Q15 vs. 1Q16 ($ in Millions)
5%
announced.
$2,784 ($52) ($160) ($18) $2,732 $38 $2,592
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Operating Portfolio Legacy Portfolio (1)
Objectives
Value-maximization and capital release from monetizing or running off non-strategic assets Operating ROE improvement across modular, focused business units
Notes: (1) Legacy Portfolio assets may evolve over time. (2) Could include select U.S. Casualty and Specialty products. (3) Shareholders’ Equity excluding AOCI and adjusted for leverage as of December 31, 2015; non-GAAP financial measure. (4) Normalized operating ROE excluding AOCI & DTA, a non-GAAP financial measure, adjusted for allocation of Corporate GOE and pushdown of parent debt; estimate for full year 2015. Preliminary estimates based on current attribution of businesses to Operating and Legacy Portfolios together with current assumption of internal leverage which could change over time.
Modular operating model and new Legacy Portfolio to enhance transparency and accountability New Legacy Portfolio to consist of non-strategic assets, including tax attribute DTA, businesses and products AIG intends to exit and select low returning legacy insurance products
Business / Assets
businesses and businesses AIG intends to exit ‒ Advisor Group ‒ P&C run-off portfolios (2) ‒ Life run-off portfolios
Settlements
legacy assets ‒ Life settlements ‒ ML III equity ‒ PICC stake held by Parent ‒ Former DIB/GCM ‒ Legacy GRE portfolio
Consumer initially
– Liability and Financial Lines – Property and Special Risks – U.S. Commercial – Europe Commercial
– U.S. Individual Retirement – U.S. Group Retirement – Life, Health and Disability – Personal Insurance (P&C) – Japan
~7.5% (after-tax) ~11.5% (pre-tax) ~5% (ex. DTA) ~3% (incl. DTA)
2015 ROE (4):
$54 bn $17 bn (ex. DTA) $34 bn (incl. DTA)
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Announced Divestitures
Does the business help us...
through proprietary data, analytics and research?
capital management?
relations?
Strategic Framework for Evaluating Divestitures
Specific actions taken and a clear framework for future transactions
If the answer is “no” to some
then we will explore alternatives, including exiting such businesses
maximize value
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76.9% 70.0% 67.2% 67.9% 66.2% 1Q’16A 64.5% ~60%
55% 60% 65% 70% 75% 80%
FY'11A FY'12A FY'13A FY'14A FY'15A 4Q'17 Target Accident Year Loss Ratio
Total Commercial Accident Year Loss Ratio Adjusted For Prior Year Development
AY LR adjusted for Prior Year Development (4Q’15)
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13% 48% 15% 41% 46% 59% 35% 59% 32% 68% 35% 73% 9% 86% 15% 91%
2015 Accident Year Loss Ratio as adjusted
50% 100%
~$20 Net Premiums Earned ($BN)
Product Set 1 Product Set 2 Product Set 3
91% FY15 AYLR
GROW
MAINTAIN AND IMPROVE
REMEDIATE
FY15 1Q16
41% FY15 AYLR
% of $20.1BN NPE AY LR % of $4.3BN NPW AY LR 1) The comparison is based on the same product set definition as FY15. 12
Client Focus
segmentation Successful execution in these areas and other AIG-wide initiatives expected to produce the following benefits by 2017:
~+$1.2 bn PTOI Accident year loss ratio (1) improvement
Portfolio “Exits”
segments of underperforming portfolios Reinsurance
reinsurance and other risk mitigating strategies to further enhance capital efficiencies Risk Selection
to improve the quality of remaining risks
Actions to sharpen Commercial focus will improve profitability
Maintain and Improve Take Action Grow
Geographic Footprint
continuing to maintain and improve multinational capabilities
Commercial GPW for Clients Purchasing at Least One U.S. Casualty Policy
Notes: (1) On a fourth quarter exit run rate basis. See appendix for further discussion of Non-GAAP financial measure.
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Actions to sharpen Consumer focus will improve profitability Leverage Successes Japan Reinsurance
Worth and Service businesses
Reduce Footprint
Successful execution in these areas and other AIG-wide initiatives expected to produce the following benefit by 2017:
~+$0.8 bn PTOI
2010A 2015A 2017E Individual 71 62 15 Group 81 66 35 Number of Countries Selling Personal Insurance
to 15 countries for individual products
inefficient segments of U.S. Life business
from transformation of Japan
U.S. Retirement
in most attractive post-DOL
Notes: (1) Department of Labor.
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Note: Allocation by accident year for illustration purposes only and subject to change. Net reserves presented above are shown before the effect of a $3.2 billion loss reserve discount. Net loss reserves for the Non-Life Insurance Companies includes Property Casualty, Personal Insurance, Mortgage Guaranty and run-off Non-Life Insurance Companies’ businesses.
20% 20% 60%
Total Net Reserves $62.9 Billion at March 31, 2016
2005 and Prior 2011-2016 2006-2010 53% 15% 8% 6%
1%
Casualty Financial Lines Specialty Property
Mortgage Guaranty Personal Lines 4% Accident and Health 3% Other Run-Off Lines - 10%
By Accident Year By Line of Business
Business Mix Shift Away from Long-Tail Casualty Lines and Accelerated Commutation of Legacy Portfolios (Especially 2005 and Prior) Are Expected to Reduce Reserve Variability
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2.2 0.6 0.5 0.3 3.6 0.0 1.0 2.0 3.0 4.0 5.0 US & Canada Casualty US & Canada Financial Lines Total Run-off Insurance Lines All Other Total 4Q15 Prior Year Development
AIG continues to broaden and enhance methods and assumptions to better inform the Company’s best estimate for reserves with the objective of mitigating the degree of volatility around the selected best estimate.
Of the $3.6 billion reserve strengthening:
2004 and prior
certain class action claims that have complex coverage issues
assumptions impacted the run-off portfolio
2011-2014
million, Financial Lines and International Casualty remain above AIG’s current profitability targets
$1 billion of the reserve strengthening
updated assumptions informed by AIG’s current view of the trend for
attributable to a higher number of severe losses
($ in Billions)
AIG strengthened Non-Life reserves by $3.6 bn, or 6% of its $58.3 bn (1) carried reserves as of September 30, 2015. Accident years 2005-2014 represent $2.3 bn, resulting in an increase in the overall accident year loss ratio in this period by 0.7 points on average
Notes: (1) Includes Mortgage Guaranty. (2) Run-off contains retained asbestos and environmental exposures as well as other run-off divisions. All Other is predominantly International Casualty business. (2) (2)
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$0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net Premiums Earned (In $Billions) Accident Year Loss Ratio (AY LR) Net Premiums Earned AY LR Adjusted for Prior Year Development (3Q15) AY LR Adjusted for Prior Year Development (4Q15)
100% LR
U.S. Casualty Accident Year Loss Ratio Adjusted for Prior Year Development
Reduced exposure in long- tailed U.S. Casualty will assist in reducing reserve estimation volatility.
AIG has taken significant actions to mitigate U.S. Casualty exposures since 2011, and in 2016 AIG has aggressively accelerated the pace of remediation and exits from targeted underperforming sub-segments
NPE AY LR Adjusted for Prior Year Development (3Q15) AY LR Adjusted for Prior Year Development (4Q15) Notes: (1) Accident year loss ratio adjusted for prior year development represents reported accident year loss ratios adjusted to exclude catastrophe losses and reflect prior year development in the appropriate accident year. The 3Q15 ratios are based on prior year development through September 30, 2015, while the 4Q15 ratio reflects development for the full year including the fourth quarter strengthening.
U.S. Casualty Actions: 2011-2015
business toward shorter tail exposures
compensation, one of the highest risk lines of business
Eaglestone for active runoff and capital management since the initial transfer
U.S. Casualty Actions in Progress: 2016-2017
underperforming portfolios
terms and conditions in underperforming portfolios
U.S. Casualty Accident Year Loss Ratio Adjusted for Prior Year Development (1)
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As of 12/31/14 As of 12/31/15 ($ in Billions) Type Gross Attributes Deferred Tax Asset Gross Attributes Deferred Tax Asset Utilization/Expiration Net Operating Loss Carryforwards Non-Life & Life $29.4 $10.3 $32.6 $11.4
Companies, Corporate & Other and up to 35% of Life Insurance Companies income
increased in 2015 as a result of current year taxable losses of Non-Life companies, primarily attributable to the reserve strengthening during 2015 Foreign Tax Credits General $5.9 $5.3
Life Insurance Companies income
utilized in 2015, primarily as a result of Life Insurance Companies income Subtotal – U.S. Tax Attributes 16.2 16.7 Other Deferred Tax Assets/(Liabilities)1 2.5 3.3 Net Deferred Tax Assets $18.7 $20.0
Diversified Operating Platform Allows For Utilization of Valuable Tax Attributes
1) General Business Credits of $0.3B and $0.4B for 2014 and 2015, respectively, are included in Other DTA/(L). Balance at 12/31/15 is net of a $1.2B valuation allowance related to unrealized losses on available for sale securities. 18
‒ Without Life income, FTCs generally cannot be used as credits since NOLs must be used first ‒ Without Life income, NOL usage would slow down, reducing the value of the tax attribute DTAs ‒ A taxpayer may elect, on a year-to-year basis, to treat foreign taxes paid as a deduction at 35% rather than an FTC at 100% ‒ However, AIG has already received substantial benefits (in excess of 35%) from FTCs from some prior years and AIG would have to reverse those benefits under IRS rules to claim the deductions ‒ As a result, AIG estimates that no more than $3.1 bn of its FTCs can be used as deductions without incurring a cost in excess of the benefit (1)
implemented prior to or subsequent to any hypothetical separation
implements its business strategies and utilizes tax attributes, the potential value lost in a separation would be reduced
Notes: (1) This forecast is based on assumptions about the timing of implementation and size of business and tax strategies, future macroeconomic and AIG-specific conditions and events, and other matters. To the extent actual experience differs or strategies are implemented or abandoned, AIG’s taxes and the timing of utilization of AIG’s tax attributes could be materially affected. (2) Approximate 10-Year US Treasury yield. (3) Illustrative cost of equity.
Estimated Loss in Present Value (1) Total NPV of Tax Attribute DTA $15.5 bn @ 2.25% Discount Rate (2) $12.3 bn @ 10% Discount Rate (3) Separation Date % of Total Tax Attribute DTAs Lost Estimated Loss ($ bn) % of Total Tax Attribute DTAs Lost Estimated Loss ($ bn) Early 2016 30% 4.6 39% 4.8 1/1/2017 22% 3.4 29% 3.5 1/1/2018 13% 2.1 16% 2.0
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Total Assets ($ bn) Total Gross Notional Derivatives ($ bn) (1) 497 878 757 AIG MetLife Prudential 186 405 428 AIG MetLife Prudential Leverage Ratio (x) (2) VA Assets / Total Equity (3) 4.7x 8.5x 11.3x AIG MetLife Prudential 1.1x 2.4x 3.6x AIG MetLife Prudential
Source: Company filings. Notes: Figures are as of December 31, 2015. (1) Calculated as sum of the gross notional amounts of derivative assets and liabilities. AIG data includes derivatives for portfolio hedging
Morgan 12/1/15 Equity Research report.
AIG has a lower risk profile than other non-bank SIFIs across key metrics
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($ in Billions, Except per Share Amounts)
Book Value Per Common Share
$58.94 $58.52 $2.13 $4.88 $14.03 $14.88 $0.00 $30.00 $60.00 $90.00
March 31, 2016 BVPS, ex. AOCI & DTA AOCI DTA $75.10 (0.7%) $78.28 +4.2%
Ratios:
2015 March 31, 2016 Hybrids / Total capital 1.2% 0.8% Financial debt / Total capital 16.3% 18.6% Total debt / Total capital 17.5% 19.4%
$90.2 $89.1 $17.9 $20.6 $1.3 $0.9
March 31, 2016 Total Equity Financial Debt Hybrids
Capital Structure
1
$109.4 $110.5
Year-end Domestic Life Insurance Companies Domestic Non-Life Insurance Companies 2014 534% (CAL) 432% (ACL) 2015 502% (CAL) 403%3 (ACL)
Risk Based Capital Ratios2
We continue to project strong RBC ratios in our target range for our Life and Non-Life businesses
1) Includes AIG notes, bonds, loans and mortgages payable, and AIG Life Holdings, Inc. (AIGLH) notes and bonds payable, and junior subordinated debt. 2) The inclusion of RBC measures is intended solely for the information of investors and is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities. ACL is defined as Authorized Control Level and CAL is defined as Company Action Level. RBC ratio for Domestic Life Insurance Companies excludes holding company, AGC Life Insurance Company. 3) Reflects $2.9B capital contribution to Non-Life Insurance Companies on January 25, 2016 as a result of the 4Q15 reserve strengthening. 4) As of May 13, 2016.
Credit Ratings4
S&P Moody’s Fitch AM Best
AIG – Senior Debt A- Baa1 BBB+ NR AIG Non-Life – FSR A+ A2 A A AIG Life – FSR A+ A2 A+ A
except for AM Best ratings which have under negative review
Companies FSR, ratings only reflect those of the core insurance companies.
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$1.7 $3.0 $1.7
Balance at 12/31/15 Insurance Company Distributions Debt Issuances Monetization
Assets Share & Warrant Repurchases & Dividends Capital Contribution to Non-Life Insurance companies Debt Tenders & Interest Other, net Balance at 3/31/16
Targeted Range $6-8B
1) On January 25, 2016, approximately $2.9B of capital was contributed to Non-Life Insurance Companies as a result of the 4Q15 reserve strengthening.
Changes in Parent Liquidity
Cash & S/T
Unencumbered Securities $5.7
$9.2
1 Unencumbered Securities $4.1 Cash & S/T
$7.1 ($4.0) ($2.9) ($1.1) ($0.5)
Includes: Non-Life = ~$0.5B Life = ~$0.8B Tax Pmts = ~$0.5B
($ in Billions)
shareholders.
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Book Value Per Share Growth in 1Q16 Impacted by Market Volatility
1) Includes negative market volatility on investments, including private equity, hedge funds, ABS CDO securities, derivatives, and holdings in PICC.
4Q15 Operating Earnings, Ex. Market Volatility impact Impact of Market Volatility on Operating Earnings Non-operating losses Accretive Share Repurchases Warrant Repurchases Dividends & Other 1Q16 $59.26 $1.13 ($0.48) $0.21 ($0.80) $59.05
Book Value Per Common Share, ex. AOCI & DTA incl. Dividend Growth – 4Q15 vs. 1Q16
($0.14)
1
($0.13)
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Active Capital Management, Underwriting Improvement and Expense Management Drives ROE Expansion
1) Largely driven by share & warrant repurchases and dividends. 2) 1Q16 operating effective tax rate includes the impact of the favorable resolution of certain tax audit items. 3) Net of associated capital return.
8.4% 0.5% 1Q15 Capital Operating Improvement (GOE & Personal Insurance) Lower 1Q16 Effective Tax Rate Net Impact of Legacy Assets 1Q16
Normalized Return On Equity
2
7.8% 8.9% 1.0% 0.4% 0.5% (0.8%)
3 1 24
0% 20% 40% 60% 80% 100% 1,000 2,000 3,000 4,000 5,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2067 2097
As of 12/31/2012 – Total Notional Amount: $25.5 Billion / Weighted Average Coupon: 6.35% As of 5/10/2016 – Total Notional Amount: $22.2 Billion / Weighted Average Coupon: 4.64%
($ in Millions) ($ in Millions)
1 1 1 2
1) Remaining callable hybrid notes are reflected at their expected call dates. 2) The 6.45% and 7.7% callable hybrid notes maturing in 2047 were called in 2013.
Liability Management Actions Have Improved Maturity Profile and Reduced Weighted Average Coupon to 4.64%
0% 20% 40% 60% 80% 100% 1,000 2,000 3,000 4,000 5,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2067 2097
1 1 1
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We use the following operating performance measures because we believe they enhance the understanding of the underlying profitability of continuing
use these measures, reconciliations to the most comparable GAAP measure are provided on a consolidated basis.
Deferred Tax Assets (DTA) and Book Value Per Common Share Excluding AOCI and DTA and Including Dividend Growth are used to show the amount of our net worth on a per-share basis. We believe these measures are useful to investors because they eliminate the effect of non-cash items that can fluctuate significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. Deferred tax assets represent U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. Amounts for interim periods are estimates based on projections of full year attribute utilization. Book Value Per Common Share Excluding AOCI is derived by dividing Total AIG shareholders’ equity, excluding AOCI, by Total common shares outstanding. Book Value Per Common Share Excluding AOCI and DTA is derived by dividing Total AIG shareholders’ equity, excluding AOCI and DTA, by Total common shares outstanding. Book Value Per Common Share Excluding AOCI and DTA and including dividend growth is derived by dividing Total AIG shareholders’ equity, excluding AOCI and DTA, and including growth in dividends to shareholders, by Total common shares outstanding.
– deferred income tax valuation allowance releases and charges; – changes in fair value of securities used to hedge guaranteed living benefits; – changes in benefit reserves and deferred policy acquisition costs (DAC), value of business acquired (VOBA), and sales inducement assets (SIA) related to net realized capital gains and losses; – other income and expense — net, related to Corporate and Other run-off insurance lines; – loss on extinguishment of debt; – net realized capital gains and losses; – non-qualifying derivative hedging activities, excluding net realized capital gains and losses; – income or loss from discontinued operations;
show the rate of return on shareholders’ equity. We believe these measures are useful to investors because they eliminate the effect of non-cash items that can fluctuate significantly from period to period, including changes in fair value of our available for sale securities portfolio, foreign currency translation adjustments and U.S. tax attribute deferred tax assets. Deferred tax assets represent U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. Amounts for interim periods are estimates based on projections of full year attribute utilization. Return on Equity – After-tax Operating Income Excluding AOCI is derived by dividing actual or annualized after-tax operating income attributable to AIG by average AIG shareholders’ equity, excluding average AOCI. Return on Equity – After-tax Operating Income Excluding AOCI and DTA is derived by dividing actual or annualized after-tax operating income attributable to AIG, by average AIG shareholders’ equity, excluding average AOCI and DTA.
AIG
– income and loss from divested businesses, including:
and
Holdings N.V. (AerCap) in connection with its acquisition of ILFC and the difference between expensing AerCap’s maintenance rights assets over the remaining lease term as compared to the remaining economic life of the related aircraft and related tax effects; – legacy tax adjustments primarily related to certain changes in uncertain tax positions and other tax adjustments; – non-operating litigation reserves and settlements; – reserve development related to non-operating run-off insurance business; and – restructuring and other costs related to initiatives designed to reduce
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income and expense — net, and non-operating litigation reserves and settlements. Underwriting income and loss is derived by reducing net premiums earned by losses and loss adjustment expenses incurred, acquisition expenses and general operating expenses.
underwriting performance. These ratios are relative measurements that describe, for every $100 of net premiums earned, the amount of losses and loss adjustment expenses, and the amount of other underwriting expenses that would be incurred. A combined ratio of less than 100 indicates underwriting income and a combined ratio of over 100 indicates an underwriting loss. The underwriting environment varies across countries and products, as does the degree of litigation activity, all of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product type and competition can have an effect on pricing and consequently on profitability as reflected in underwriting income and associated ratios.
related reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting. Natural catastrophe losses are generally weather or seismic events having a net impact in excess of $10 million each. Catastrophes also include certain man-made events, such as terrorism and civil disorders that meet the $10 million threshold.
effects of certain volatile or market related items. Normalized Return on Equity, Excluding AOCI and DTA is derived by excluding the following tax adjusted effects from Return on Equity – After-tax Operating Income, Excluding AOCI and DTA: – Catastrophe losses compared to expectations – Alternative investment returns compared to expectations – DIB/GCM returns compared to expectations – Fair value changes on PICC investments – Update of actuarial assumptions – Net reserve discount change – Life insurance IBNR death claim charge – Prior year loss reserve development
adjustment expenses, reported as policyholder benefits and losses incurred and (ii) certain investment and other expenses reported as net investment income, and exclude (i) advisory fee expenses, (ii) non-deferrable insurance commissions, (iii) direct marketing and acquisition expenses, net of deferrals, (iv) non-
gross basis, which represents changes during the period in General operating expenses, operating basis, before the effect of additional investments made during the period. We use general operating expenses, operating basis, because we believe it provides a more meaningful indication of our ordinary course of business operating costs.
transfer of equity associated with certain run-off businesses and the attribution to the operating businesses of a portion of Corporate GOE, Parent debt and the related interest expense. The objective of the Legacy Portfolio is to maximize value and release capital of certain run-off non-strategic assets. We believe this measure allows for more transparency into the progress on improving the ROE of our Operating Portfolio. The current attribution of businesses to Operating and Legacy Portfolios is based on estimates including an assumption of the level of internal leverage which could change over time.
AIG Commercial Insurance: Property Casualty and Mortgage Guaranty; Consumer Insurance: Personal Insurance
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– loss on extinguishment of debt – net realized capital gains and losses – changes in benefit reserves and DAC, VOBA and SIA related to net realized capital gains and losses – income and loss from divested businesses, including Aircraft Leasing Corporate and Other – net gain or loss on sale of divested businesses, including:
in connection with its acquisition of ILFC and the difference between expensing AerCap’s maintenance rights assets over the remaining lease term as compared to the remaining economic life
– non-operating litigation reserves and settlements – reserve development related to non-operating run-off insurance business – restructuring and other costs related to initiatives designed to reduce
Results from discontinued operations are excluded from all of these measures. Commercial Insurance: Institutional Markets; Consumer Insurance: Retirement and Life
– changes in fair value of securities used to hedge guaranteed living benefits; – net realized capital gains and losses; – changes in benefit reserves and DAC, VOBA and SIA related to net realized capital gains and losses; – non-operating litigation reserves and settlements
policies and life-contingent payout annuities, as well as deposits received on universal life, investment-type annuity contracts and mutual funds. Acronyms
Note: Amounts presented in billions may not foot due to rounding.
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Notes: (1) Represents U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. (2) Represents transfer of the equity associated with discontinued/run-off businesses (primarily Life Insurance Companies run-off portfolios and pre-2012 structured settlements) to the legacy portfolio. (3) Represents the allocation of financial debt to the Operating Portfolio at leverage of 20% for Non-Life Insurance Companies and 25% for Life Insurance Companies (calculated as Financial Debt + Hybrid Debt / Total Capital) by transferring in a portion of parent financial debt.
Reconciliation of AIG Shareholders' Equity, Ex. AOCI and DTA: ($ in Billions) Life Insurance Non-Life Insurance Total Life and Non-Life Insurance Corporate As of December 31, 2015 Companies Companies Companies and Other AIG Inc. Total AIG shareholders' equity $32.1 $44.7 $76.7 $12.9 $89.7 Less: Accumulated other comprehensive income (AOCI) (1.7) (1.2) (2.9) 0.4 (2.5) Total AIG shareholders' equity, excluding AOCI 30.4 43.4 73.8 13.3 87.1 Less: Deferred tax assets (DTA)1
Total AIG shareholders' equity, excluding AOCI and DTA $30.4 $43.4 $73.8 ($3.4) $70.4
Reconciliation to Core and Legacy Portfolio Shareholders' Equity, Ex. AOCI and DTA: Core Portfolio Legacy Portfolio AIG Inc. Total AIG shareholders' equity, excluding AOCI and DTA $73.8 ($3.4) $70.4
2
Transfer equity of legacy portfolio (4.6) 4.6
(15.6) 15.6
$53.6 $16.8 $70.4
($ in Millions) FY 2014 FY 2015 1Q15 1Q16 Total General operating expenses, Operating basis $11,940 $11,141 $2,784 $2,592 Loss adjustment expenses, reported as policyholder benefits and losses incurred (1,667) (1,632) (423) (341) Advisory fee expenses 1,315 1,349 332 317 Non-deferrable insurance commissions 522 504 128 122 Direct marketing and acquisition expenses, net of deferrals 570 659 140 144 Investment expenses reported as net investment income (88) (76) (20) (15) Total general operating and other expenses included in pre-tax operating income 12,592 11,945 2,941 2,819 Restructuring and other costs
Other expense related to retroactive reinsurance agreement
Non-operating litigation reserves 546 12 8 3 Total general operating and other expenses, GAAP basis $13,138 $12,686 $2,949 $3,003
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($ in millions) 1Q15 1Q16 Annualized net income (loss) attributable to AIG (a) $9,872 ($732) Annualized after-tax operating income (loss) attributable to AIG (b) $6,764 $3,092 Average AIG Shareholders' equity (c) $107,439 $89,088 Less: Average AOCI (10,637) (4,031) Average AIG Shareholders' equity, excluding average AOCI (d) 96,802 85,057 Less: Average DTA (15,862) (16,788) Average AIG Shareholders' equity, excluding average AOCI and DTA (e) $80,940 $68,269 ROE (a÷c) 9.2% (0.8%) ROE - after-tax operating income, excluding AOCI (b÷d) 7.0% 3.6% ROE - after-tax operating income, excluding AOCI and DTA (b÷e) 8.4% 4.5%
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Book Value Per Common Share ($ in Millions, Except Per Share Data)
March 31, 2016 Total AIG shareholders’ equity (a) $89,658 $88,518 Less: Accumulated other comprehensive income (AOCI) (2,537) (5,525) Total AIG shareholders’ equity, excluding AOCI (b) 87,121 82,993 Less: Deferred tax assets (DTA) (16,751) (16,825) Total AIG shareholders’ equity, excluding AOCI and DTA (c) $70,370 $66,168 Total common shares outstanding (d) 1,193.9 1,130.7 Book value per common share (a÷d) $75.10 $78.28 Book value per common share, excluding AOCI (b÷d) $72.97 $73.40 Book value per common share, excluding AOCI and DTA (c÷d) $58.94 $58.52 Add: Book Value per common share impact from dividend growth $0.32 $0.53 Book value per common share, excluding AOCI and DTA and including dividend growth $59.26 $59.05 1Q15 1Q16 Normalized Return On Equity, Ex. AOCI & DTA Pre-tax After-tax ROE Pre-tax After-tax ROE ROE – After-tax operating income (loss), ex. AOCI & DTA $2,527 $1,691 8.4% $954 $773 4.5% Adjustments to arrive at Normalized ROE, ex. AOCI & DTA: Catastrophe losses above (below) expectations (113) (74) (0.4%) 23 15 0.1% (Better) worse than expected alternative returns (141) (92) (0.4%) 714 464 2.7% (Better) worse than expected DIB & GCM returns (60) (39) (0.2%) 395 257 1.5% Fair value changes on PICC investments (54) (35) (0.2%) 103 67 0.4% Update of actuarial assumptions2
Net reserve discount change 165 107 0.5% (10) (7) 0.0% Life insurance – IBNR death claims
(16) (0.1%) Unfavorable (favorable) prior year loss reserve development 35 23 0.1% (60) (39) (0.2%) Normalized ROE, ex. AOCI & DTA $2,359 $1,581 7.8% $2,094 $1,514 8.9%
Note: Normalizing adjustments are tax effected using a 35% tax rate and computed based on average normalized shareholders’ equity, excluding AOCI and DTA, for the respective period. 1) Represents U.S. tax attributes related to net operating loss carryforwards and foreign tax credits. 2) Represents the effect on Life and Retirement results from the review and update of certain assumptions used to amortize DAC and related items for interest- rate sensitive products, including life and annuity spreads, mortality rates, surrender rates and variable annuity growth rates. The update of actuarial assumptions also included adjustments to reserves for universal life with secondary guarantees, group benefit claim reserves and loss recognition for certain discontinued long-term care products. 33
1) Excludes AOCI and DTA and includes dividend growth.
March 31, 2016 Reconciliation of Market Volatility & Net Realized Capital BVPS1 Losses to Net Income Pre-tax After-tax Impact ($ in millions, except per share amounts) income income (a) (a) ÷ (b) Market volatility on investments: Private equity $114 $74 $0.06 Hedge funds (537) (349) (0.29) PICC Group and PICC Property & Casualty (103) (67) (0.06) DIB & GCM Total market volatility on investments (341) (222) (0.19) (867) (564) (0.48) Non-operating losses (1,168) (956) (0.80) Operating Earnings, excluding Market Volatility 1,821 1,337 1.13 Total ($214) ($183) ($0.15) Total common shares outstanding at December 31, 2015 (b) 1,193.9
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Commercial Insurance Property Casualty Accident Year Combined Ratio, As Adjusted FY 2015 1Q16 Loss ratio 86.2 68.2 Catastrophe losses and reinstatement premiums (2.9) (4.7) Prior year development net of premium adjustments (17.5) 0.4 Net reserve discount benefit (change) 0.4 0.6 Accident year loss ratio, as adjusted 66.2 64.5 Acquisition ratio 16.1 16.3 General operating expense ratio 12.7 12.4 Expense ratio 28.8 28.7 Combined ratio 115.0 96.9 Catastrophe losses and reinstatement premiums (2.9) (4.7) Prior year development net of premium adjustments (17.5) 0.4 Net reserve discount benefit (charge) 0.4 0.6 Accident year combined ratio, as adjusted 95.0 93.2
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